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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Terry Maloney who wrote (287983)	5/23/2004 11:11:54 AM
From: Michael Watkins	Read Replies (1) \| Respond to of 436258

Turning to more interesting news, the British council of mortgage lenders is calling for further rate hikes to avoid a crash in their property market If their market is like ours, its probably too late. Mind you, its not like the warning is only recently been sounded. Recent evidence locally: trendvue.com As safe as what? Aug 29th 2002, The Economist print edition Disillusioned investors have turned from shares to housing. A bubble, anybody? economist.com Bubble trouble? People are fretting that rising house prices could collapse like they did in Toronto after 1989 Donald Coxe, chief strategist of Bank of Montreal's Harris Investment Management of Chicago, was in Vancouver last month to assess the city's residential real estate market. His take: any way you slice it, it's a bubble. Average house prices in Vancouver, already Canada's highest, shot up 13% last year, to $354,000. When units in one condo went up for sale recently, people lined up around the block. What worries Coxe most: many weren't there to buy homes, but to snap up real estate to sell in the near future. Coxe isn't the first to warn of skyrocketing prices. For about two years now, people have fretted that rising house prices could collapse like they did in Toronto after 1989. This time round, they worry, it could be worse, since home values have helped consumers carry the economy through what should have been a difficult recession. canadianbusiness.com Houses 'gone overnight' in searing-hot market And prices likely to go higher against low interest rates May 5, 2004 House prices in Greater Vancouver are climbing faster than building-site elevators, up by nearly 20 per cent in the past year or the equivalent of $222 a day. 66.102.7.104 Bloomberg had a decent article recently: Housing Shows Cracks in Foundation: Caroline Baum [snip] Another way to assess the existence of a bubble is to look at housing prices relative to income growth. On that score, the conclusion is the same. ``The ratio of the market value of real estate to disposable personal income is at an all-time high,'' says Joe Carson, chief economist at Alliance Capital Management. At 1.73, the ratio exceeds the previous high of 1.6 in 1989, the end of the long housing boom in the 1980s that put a lot of savings and loans out of business. Mortgaging Our Future A third and non-traditional way to evaluate the price of housing is from the financing side. And here's where the alarm bells sound the loudest. ``Mortgage debt is now growing at two times the rate of growth in personal income and more than two times the rise in the value of real estate -- faster than at any other period in U.S. history,'' Carson says. For both borrowers and lenders, rising indebtedness may appear to pose no risk as long as the underlying asset values are appreciating. Carson says history isn't on their side. ``Risk in asset markets actually increases when excessive amounts of debt are used to finance general asset accumulation,'' he says. Late-Cycle Phenomenon What's ominous is the timing. Like the ratio of home prices to personal income, the mortgage-debt-to-income ratio usually spikes at the end of the business cycle, not the start, Carson says. In previous cycles, the ratio rarely rose above one. In the past two years, mortgage debt has been rising at two to three times the rate of personal income. Mortgage borrowing rose $723 billion (annualized) in the first quarter of 2003, according to the Fed's Flow of Funds report. That compares with an increase of $667 billion in 2002 and $375 billion in the boom year of 1999. Even with the strong appreciation in home prices, the gap between mortgage debt and the market value of real estate widened to a record $350 billion in the past year, Carson says. ``This is the first cycle in history in which an increase in personal income is needed to pay for assets that have already been purchased and not for assets to be purchased in the future,'' Carson says. quote.bloomberg.com This says it all: Why its not too late to buy trendvue.com